Chaos Theory reigns in global iron ore war

Aaron J. Brown is an Iron Range blogger, author, radio producer and columnist for the Hibbing Daily Tribune.

I must admit, somewhat sheepishly, that I first learned about the mathematical concept of Chaos Theory not from exhaustive graduate study, but from Jeff Goldblum in the movie “Jurassic Park.” To quote his character, the wry Dr. Ian Malcam, always quick with a cynical retort amid encroaching dinosaurs, “A butterfly can flap it’s wings in Beijing and in Central Park you get rain.” Everything affects something else, unpredictably.

That may well be true, but the main problem in “Jurassic Park” wasn’t wind, but big nasty dinosaurs breaking through flimsy security and gobbling down the ill prepared.

Last week, a ton of iron ore sold for $54.60 in China. That’s a bigger deal than some little butterfly. It means that mines here on Northern Minnesota’s Iron Range can soon expect a ton of taconite rolling off the Mesabi to fetch little more than the cost of making it. In nations where the iron industry is subsidized, mines can continue operating to keep people working. But that’s not the case here, and American mines have long ago learned that ore production must stop during these times of low demand to preserve the health of the industry.

We know that’s why Keewatin Taconite announced its upcoming indefinite shutdown come May, why Magnetation and Mesabi Nugget have announced similar idling plans, and why there almost certainly will be more mine production stoppages throughout the region this year.

Some, particularly among the Iron Range legislative delegation, were quick to suggest that the state’s controversial wild rice standard was to blame for KeeTac’s shutdown. This would be a little like saying that the problem with Jurassic Park was that the Jeep used to escape the T-Rex wasn’t fast enough. Sure, a faster Jeep would have been nice, but — in case you forgot — T-REX!

The cost for Iron Range mines to meet environmental regulations is significant, to be sure, but it joins myriad other costs, including larger expense like labor and energy, to factor into the total cost of production. The fixation by many on the “dangers” of environmental regulation has made every problem seem related to this contentious debate.

No, my friends, we need to think about the T-Rex. In this case, you can find a pretty big T-Rex in western Australia, where the Roy Hill Project is about to go online. The Roy Hill Project is a new iron ore mine, complete with workers’ village, sea port and rail network that will produce 45 million tons of pellets annually. For perspective, that’s more iron ore that we produce in all of Minnesota in a typical year. This mine will feed China and other Asian markets, further depressing the price of iron ore.

These really big T-Rex mines in Australia and places like Brazil are happy to forge ahead even amid low prices, because when prices return to normal or better, they’ll have effectively consumed more of the market share in China and, as a result, the world.

Last Monday, the port of Duluth and Superior opened its 2015 shipping season with the John G. Munson hauling 24,000 tons of taconite out of the harbor. Other ships soon followed. In coming weeks we’ll see what Iron Range mines decide to do with the traditional spring taconite pellet stockpiles, which are larger than average based on conversations I’ve had.

We will see many economic fits and starts here on the Iron Range for the rest of this year, perhaps enduring into the next. More layoffs. More anxiety. There’s no good in panic, but there’s also no excuse for inaction. Ask yourself, what seems like something we — you, me and our neighbors — can do? Figure out how to beat Australia and Brazil at the iron ore pricing game, or diversify the Range’s economy into sectors not so dependent on commodity pricing, relying on our iron industry only during periods of high prices?

Spoiler alert: The T-Rex wins, and Northern Minnesota can’t rely on mining alone to survive to the end of the movie. We must get off this economic island.

Comments

Excellent, Aaron, per usual. Range legislators cannot continue to blame environmental regulations for the downturn of the demand for iron ore and taconite, when it is a global downturn. That is simply a smokescreen to avoid the real need to get out from under the one-horse economy of the past, and to move into the diversification of the Range economy.

Personally, I don’t feel chaos theory and the butterfly effect are congruent or similar. I’m talking about ripples in the pond, man. I mean, somebody threw that pebble. The pond didn’t spontaneously erupt into a broiling mass. A butterfly flapped her wings. I feel chaos implies there was no butterfly. The effect occurred with no cause. Except, a butterfly did fly. Someone did throw a pebble. That is not chaos. Chaos is a pebble throwing itself.

I’m weird, though. I understand Harvey always really was talking to a rabbit.

A truly robust economic system, if one COULD exist, would be nimble and agile; most individuals could re-tool and re-train for whatever was coming online in relatively short order. Including management. Even geologists and finance people.

It seems to me that the world considers nearly everything a zero-sum game, including us. We jockey for position, seeking to gain advantage because we all accept it as the only game in town.

Of course everyone up here wants diversification, the burning question is how. How about we use IRRRB money to pay property taxes for 1st 5 yrs and phase in next 5 for start up companies. Let’s be creative with our taconite tax money. I’m a pro mining/logging person but would love to see diversification up here. Let’s put pressure on IRRRB to be creative, all they have been up to this point is an embarrassment.

Aaron
You’ve been singing this “diversification” song since you started your blog and yet, yet have not offered one pragmatic step towards such. To have an impact you must get to page two or three of your Power Point presentation of just what the heck you’re talking about….or just get on with The Great Northern Radio show….Say, that’s an idea..

Bob, why on earth do you spend so much time kvetching on a blog you don’t think I should write? That’s some high order trolling there. I’ll refer you to the dozen or so times we’ve had protracted exchanges on this topic, because I’ll not type another word of it.

Aaron…You’re blog is one of the very few addressing life on the Range. That’s why I click into it now and then. All I’m saying is if you offer up an idea, bring some color to it, some detail…..and demonizing the ore companies or redistributing wealth of others doesn’t qualify as constructive.

We’ve got trees, ore, lakes, fish and most importantly an open-minded well educated workforce. Have you got new ideas on how to use these resources? If so, expound…As I’ve said before I’m ready to help..

But I do think our taconite industry is subsidized. The 1964 Taconite Tax amendment enacted a production tax in-lieu-of property tax for the taconite industry–because taconite is low-grade and would be facing competition on the world market. The taconite industry is taxed at a rate of $2.46 per ton of pellets produced.
In addition, the IRRRB has assisted the taconite industry on various requests and upgrades–I believe in the range of $9 million over the past decade or so.
Then there is the Highway 53 road project, and all of the infra-structure put in place for Essar by state dollars.
There’s also a bill winding its way through the state legislature that would create a “carve-out” for the taconite industry–so that it could negotiate lower energy rates, which would be subsidized by the rest of us.
In addition, our agencies have not required the taconite industry to meet environmental standards. So they are also being subsidized by the pollution of our environment.

Well educated open minded workforce. And on what parallel universe is this. I know wormholes exist as I drive through two on a consistent basis, and both of them are when leaving the range. I suppose open minded can be redefined to mean yelling “packsacker”, ” treehugger” or some racial slur. Or, it can mean employing yet another semi-retired, unqualified late 60’s boomer who advocates subsidizing stripmalls and building hotels with views of half closed malls as “economic development”. Or, single mindedly funding, changing laws and making deals to subsidize projects your friends and acquaintances are starting. Or, lamenting dying industries such as pulp production. Maybe the original problem needs acceptance, much like one needs to acknowledge an illness for treatment: 1977 will never exist again. There will never be 15_000, much less 6000 miners ever again. Ever. Even if all the projects advocated for came online and the weed infested, hydrogen sulfide filled pit moonscape was expanded to twice its size,it will never be what it was even 15 years ago, much less 40. This is what happens to resource colonies: they are abandoned once the profits are extracted.

Internal colonialism. Yup. Truth is, nothing we are discussing is new. For example, why is there still a term titled “Steel Dumping” on the Iron Range? The rest of the world, every other industry, refers to that as normal. All of this already happened. We are contemplating the past. Most of this happened a few decades ago.

One big way the elites get their money is keeping IRRRB, IM-EX bank and other crony capital ventures working in the shadows. The fact that IRRRB used tax money to run a Democratic call center to collect money and elect DFL’ers up here without anyone batting an eye shows how far we have sunk. Yet those are the same folks we are counting on to diversify the Range economy…… Color me skeptical.

I get the elites (sorta), but jobs are jobs, ain’t many racing up here to “create” more. Our problem is on the international system we have to compete. The world issue is the trade agreements we make. NAFTA, FTAA, and soon the TPA(did I get that one right?). Watch out then. How many individuals are even looking at these agreements? Heck, they have only been around since President Clinton(current history).

I was wondering if anyone has ever thought about approaching Polaris Industries. I have heard more than once that they would love to add more lines for Side X Side production. Just a thought, I know that this area has many people that can offer very good technical employees.

Expect indictments against officials of the Export-Import Bank — lots of indictments.

Bombshell new testimony from a government investigator revealed that there are 31 instances of alleged fraud by employees of the bank currently under investigation.

The bank is known for financing U.S. export deals to foreign interests that can’t get private loans because they’re too risky to insure. Now the bank is under fire on a criminal level. Former Ex-Im loan officer Johnny Gutierrez was charged with bribery Tuesday for accepting cash bribes 19 different times dating back to 2006 and continuing into 2013.

“It looks that way,” Rep. Jim Jordan of the House Oversight and Government Reform Committee referred to the likelihood of more indictments. “It’s not just the Gutierrez case. There could be indictments on the other 31.”

Ex-Im Bank acting inspector general Michael McCarthy revealed in testimony before Rep. Jordan Wednesday that the 31 cases of corruption involve more than 31 different employees.

Overburden: Modern Life on the Iron Range

By Aaron Brown
A 21st century memoir of a place and a people:
(Buy now on Amazon) -- The Iron Range is a string of blue collar towns along an iron formation in northern Minnesota, many of which ... Read More →

The Great Northern Radio Show features music, comedy & stories about modern life off the beaten path: written, produced & hosted by Aaron J. Brown with a talented supporting troupe and the best Minnesota musicians and guests. Each episode of the Great Northern Radio Show is broadcast from a different small town or off-the-wall ... Read More →